Income Inequality and Political Polarization: Time Series Evidence Over Nine Decades

22 Pages Posted: 16 Aug 2016

See all articles by John V. Duca

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas; Oberlin College

Jason L. Saving

Federal Reserve Banks - Federal Reserve Bank of Dallas

Date Written: September 2016

Abstract

Rising income inequality and political polarization have led some to hypothesize that the two are causally linked. Properly interpreting such correlations is complicated by multiple factors driving these phenomena, potential feedback between inequality and polarization, measurement issues, and the statistical challenges of modeling non‐stationary variables. We find that a more precise measure of inequality (the inverted Pareto–Lorenz coefficient) is more consistently and statistically related to polarization in the short and long runs than the less precise top 1 percent share of income. We find bi‐directional causality between polarization and inequality, consistent with theoretical conjecture and less formal evidence in previous studies.

Keywords: inequality, polarization

JEL Classification: D31, D63, D72

Suggested Citation

Duca, John V. and Saving, Jason L., Income Inequality and Political Polarization: Time Series Evidence Over Nine Decades (September 2016). Review of Income and Wealth, Vol. 62, Issue 3, pp. 445-466, 2016, Available at SSRN: https://ssrn.com/abstract=2824045 or http://dx.doi.org/10.1111/roiw.12162

John V. Duca (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Oberlin College

Oberlin, OH 44074
United States

Jason L. Saving

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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